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Option Question
Posted: December 17th, 2005, 2:59 pm
by toronto
Suppose we own a plain vanilla FX option on one of the major exchange rates (like EUR/USD). The option is European and ATM. Exchange rate and IR do not move. Can the value of your option change, leaving aside the time decay effect?What factors could lead to such changes?Please enlighten me....I want to learn more about option
Option Question
Posted: December 17th, 2005, 5:23 pm
by Surfer
Ahh...how about volatility...the obvious(main) factor!
Option Question
Posted: January 7th, 2006, 4:29 am
by fnmartin
QuoteOriginally posted by: SurferAhh...how about volatility...the obvious(main) factor!I have a question, if the exchange rate stays unchanged, the vol is 0, right?? then how can the value be affected?Thanks a lot!
Option Question
Posted: January 7th, 2006, 8:43 am
by mghiggins
They mean implied vol, not realised vol. Implied vol is just another way of expressing the market option price, though, so it doesn't say much to answer your question by saying "vol changes"; it's equivalent to saying that the option price changes.
Option Question
Posted: January 7th, 2006, 10:44 am
by fnmartin
QuoteOriginally posted by: mghigginsThey mean implied vol, not realised vol. Implied vol is just another way of expressing the market option price, though, so it doesn't say much to answer your question by saying "vol changes"; it's equivalent to saying that the option price changes.ft..so what's the factor?players' expectation on vol? supply demand? underlying movement?
Option Question
Posted: January 7th, 2006, 3:30 pm
by Surfer
It's the ONLY answer. If spot & IR's don't move, the only thing that can change the price is a VOL movement. The VOL movement will affect the DECAY as well, so u can't just ignore DECAY.